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Contracts, disputes

Dispute resolution

Effective dispute resolution helps minimise the costs and damage to relationships arising from the commercial disputes that are an almost inevitable part of doing business. If informal negotiation fails to resolve a dispute, mediation or arbitration can be a much better option than litigation in court.

Dispute resolution basics

Your first step should be to check the facts before starting any form of dispute resolution procedure or litigation. Look at what was agreed, what actually happened and why. Try to quantify the loss suffered by each side in the dispute. Assess how strong your case will be if the dispute goes to a formal dispute resolution procedure. As well as putting together any evidence you have to back up your claims, you may need to take advice on the legal position.

At the same time, you may want to assess the other side’s ability to pay, particularly if you are considering launching costly legal action. There is no point taking someone to court only to find that they are insolvent leaving you unable to enforce judgment or recover your costs.

With all the facts to hand, you can decide your negotiating position. It’s usually worth trying to negotiate agreement between yourselves before trying other dispute resolution alternatives. Willingness to compromise – on both sides – is important.

Contracts often specify that some form of ADR should be used to resolve disputes. In any case, courts will generally expect the parties to a dispute to try ADR before litigation.

Mediation can be the quickest and cheapest option. The parties work with a mediator who tries to help them reach an agreement. Mediation can only be used if both sides agree – the outcome is not binding. Mediation services are typically provided by experts.

Arbitration instead involves each side presenting their case to an expert arbitrator who then makes a decision on how to resolve it. While arbitration tends to be more expensive and confrontational, it does allow for a definite resolution as the arbitrator’s decision generally has to be accepted by all parties, hence the use of the term ‘binding arbitration’.

In the construction industry, however, disputes are generally handled using a less formal adjudication procedure.

Litigation

Going to court should be a last resort, whether you are suing or are being sued. Commercial litigation can be very expensive, stressful and time-consuming.

Making sure you understand and follow the procedures is essential. While you may be able to handle a ‘small claims’ case yourself, legal advice is highly advisable for substantial or complex disputes.

Even if a dispute has ended up with litigation, you should continue to look to negotiate a compromise agreement – even once court action has started. A willingness to negotiate can have an important effect on who is liable for legal costs.